The Chinese insurance business has been booming, as a growing middle class and increasing wages have allowed Chinese consumers to begin buying insurance. US based insurance giant Mass Mutual will exchange $100 million for 19.9% control of the well known Yingda Taihe Life Insurance Company.
Chinese insurance market growing
The insurance market in China is one of the fastest growing in the world as premiums for insurance grew by 39% in 2008. The insurance market was set to grow by as much as 42%, but the late year credit crunch forced buyers to cut back on spending.
US market slowing
The US market is slowing, as many re-insurers have been forced to increase rates in order to cover large losses on derivatives and insurance on corporate bonds, which have seen higher default rates since the recession and credit crunch began. Insurance in the US is often tied to the employer, and therefore, higher unemployment rates in the United States also cut into profit margins, as unemployed citizens find it hard to buy insurance on the open market. Insurance premiums are often subsidized by employers, and insurance for self-employed and unemployed persons can be difficult, if not horrendously expensive, to purchase.
US insurance companies take stake in China
Mass Mutual is following the lead of AIG, which is currently the largest foreign insurer in China. AIG collected nearly $1 billion in insurance premiums in the first 11 months of 2008. AIG was recently bailed out by the US Federal Government, however, Mass Mutual said in a statement that it would not take part in the Federal bailout, as its assets and balance sheets remained solid. Chinese regulations prevent foreign insurance companies from holding more than 20% in any Chinese insurance company. To do business in China, insurance companies and issuers must obtain licenses, which are granted very rarely to foreign companies. To circumnavigate the regulations, many international insurance corporations have opted for buying 19.9% in a variety of firms rather than seek licensing.